Strong rise in Core Bank’s results is basis for Group pre-tax profit of € 121 million
- Core Bank pre-tax profit of € 639 (prev. yr.: 204) million
- Group net income of € 69 (98) million
- Loan loss provisions again high – € 2 billion newly set aside for legacy shipping assets alone
- Common Equity Tier 1 ratio up to a good 14.1 (12.3) %
- CEO Ermisch: “Strong Core Bank has growth potential and is the basis for the complex change of ownership in 2018”
Hamburg/Kiel, March 30, 2017 - Encouraging performance in the client business, consistent savings and further wind-down of legacy assets contributed to pre-tax profit of € 121 (450) million for the HSH Nordbank Group in 2016. As expected, this was below the previous year’s very high figure, which benefited from one-off effects.
The continuing strong relationship with our commercial real estate clients, a considerable increase in new business with corporate clients – mostly SMEs – and the good result of our Treasury & Markets business characterised the Core Bank's pre-tax profit of € 639 (204) million, without expenses for restructuring and privatisation as well as majority of guarantee fees. At the same time, HSH Nordbank further improved its capital ratios in 2016, clearly surpassing the values demanded by the market, thus establishing the conditions within its powers for the change in ownership scheduled for 2018. After all, the Core Bank has more than offset the considerable burdens from the Non-Core Bank.
"In 2016, HSH Nordbank demonstrated the strength of its operations thanks to the out-standing loyalty of its clients. We have costs under control and the Bank has improved its capital ratios once again, despite the challenging conditions in the shipping business. The Core Bank has growth potential. However, the legacy assets dating from before 2009 and the complex guarantee from that year remain a considerable burden on the path towards the change of ownership in 2018. Privatisation is certainly not a foregone conclusion and it places demands on all stakeholders,” said Stefan Ermisch, Chief Executive Officer of HSH Nordbank. “It is now important to continue supporting the federal states of Hamburg and Schleswig-Holstein so that the difficult road to privatisation, which will ask a lot from all parties involved, can be completed successfully.”
Group underpinned by Core Bank – Receivables down as planned
HSH Nordbank's net profit before tax at € 121 (450) million represented satisfactory performance in a challenging environment, but remained below the high prior-year figure that benefited from positive one-off effects from the revaluation of hybrid instruments and the reversal of guarantee premiums. The Group net income consists of the Core Bank's significant profit of € 639 (204) million as well as the negative results from the Non-Core Bank of € -299 (173) million and the "Others and Consolidation" of € -219 (73) million, in each case before tax. After tax, HSH Nordbank reports a Group profit of € 69 (98) million for the 2016 financial year.
The total income within the Group of € 921 (1,296) million is down from the previous year’s level, as expected, and was driven by net interest income of € 607 (1,032) million. Income from the operating business and such non-recurring items as the sale of promissory note loans contrasts with a perceptible decline in interest-bearing receivables due to restructuring and new loan loss provisions for legacy assets in the Non-Core Bank.
Savings in operating and personnel expenses ─ High privatisation costs
The Bank's strict cost management is reflected in administrative expenses, which, at € -634 (-634) million, were at the previous year’s level. The write-downs amounting to € -100 (-55) million comprised as much as € -66 million in impairments for the revaluation of property. The ambitious targets for personnel and other operating expenses were fully achieved. Lower building costs resulted in total in significantly reduced operating expenses of € -278 (-302) million, even though this includes high expenses for prudential and accounting-related requirements. The decline in personnel expenses to € -256 (-277) million reflects the reduction by 220 from the end of 2015 in the number of full-time employees to 2,164. The result from restructuring clearly shows high costs for the restructuring and privatisation amounting to € -110 (-31) million.
Core Bank with substantial pre-tax profit ─ Expansion of new business
The Core Bank generated profit before tax of € 639 million in the past financial year, thus substantially exceeding the previous year’s figure of € 204 million. All business areas of the Core Bank, as well as the leveraging of unrealised reserves, contributed to this strong result. The Core Bank is now fully established in a market characterised by low interest rates and intense competition, and it has growth potential.
The bulk of the perceptible increase in the Core Bank's total income of € 1,003 (850) million was provided by the improved net interest income of € 649 (509) million. Further components of total income include sales of securities and promissory note loans, the net trading income of € 186 (232) million and the net commission income of € 83 (92) million. HSH Nordbank’s new business in 2016 was robust and increased slightly to € 8.9 (8.8) billion, despite what proved at times to be difficult market conditions.
In the Corporate Clients business area, the sector-focused business strategy is bearing fruit, with 19 percent growth in new business year on year. In a market environment characterised by high liquidity on the corporate side, new deals increased noticeably to € 3.8 (3.2) billion. The financing of wind energy projects in Germany and Scandinavia of € 1.3 billion provided a major contribution to this result. The Industry & Services, Trade and Food Industry segments each signed new business worth € 0.8 billion. Among other things, the Infrastructure & Logistics segment financed district heating grids and railway projects with a volume of € 0.7 billion. The successful new business increases the loan portfolio in the Corporate Clients business area to € 14.2 (13.9) billion (EaD, Exposure at Default); net income before tax increased to € 89 (77) million.
Commercial Real Estate Financing again reflects the excellent positioning of HSH Nordbank that has developed over the course of several decades. In addition to consistently good new deals in the northern German core region, business in the western German metropolitan regions and with international investors was also successful. Nevertheless, the volume of new business was managed with an eye to the market cycle and expanded only modestly to € 4.6 (4.5) billion. This served to offset high scheduled and unscheduled repayments, so that the loan portfolio increased slightly to € 12.5 (12.3) billion (EaD). With a pre-tax figure of € 148 (131) million, the Real Estate Clients business area makes a major contribution to the Bank's net profit.
In the Shipping business, the Core Bank deliberately signed only reduced new business of € 0.3 (0.8) billion in view of the persistently difficult market situation in shipping; the deals were closed with creditworthy international companies. A further reduction in legacy assets and the allocation of shipping exposures to the Non-Core Bank reduced the existing business volume to € 7.1 (8.4) billion and increased the quality within the portfolio: around 90 percent of loans are performing.
The Treasury & Markets business area generated net income before taxes of € 298 million and thus substantially exceeded the pre-year figure of € 162 million. This good performance was driven by the deposit business with savings banks and institutional clients and the sale of capital market products. Sales of promissory note loans and securities additionally contributed to the earnings growth in this business area.
The total assets of the Core Bank declined slightly to € 48 (49) billion due to accelerating the portfolio wind-down in the Shipping business area. Holdings in the Real Estate Clients and Corporate Clients business areas were increased slightly due to good client loyalty and vibrant new business.
Sustained high loan loss provisions for shipping loans in Non-Core Bank
Given the ongoing difficult development of the shipping market, further special loan loss provisions amounting to a high figure of € -1,999 million before guarantee were made for Shipping. General loan loss provisions of € 237 million were simultaneously reversed, leaving a balance of € -1,762 million to be allocated to loan loss provisions. Almost all - 98 percent - of this figure related to legacy shipping loans in the Non-Core Bank. Reversals in the Real Estate Clients and Corporate Clients businesses and in Aviation totalling € 185 million led to loan loss provisions before guarantee within the Group of € -1,577 million. This figure contrasted with € 1,733 million from the compensation for the guaranteed portfolio (incl. forex result and the hedging effect from the credit derivative) and effects from the loss accounting in connection with the federal state transaction, as a result of which a positive loan loss provision of € 156 (304) million was reported in the lending business.
NPEs down to € 14.6 bn, just € 1 bn with Core Bank – Good coverage ratios
The non-performing exposures of HSH Nordbank are, at € 13.6 billion, almost entirely pooled in the Non-Core Bank and clear the way for the largely unencumbered Core Bank, which now has NPEs of only € 1 billion.
The comprehensive and conservative loan loss provisioning ensures comfortable Group-wide coverage ratios for this impaired portfolio, as calculated by the ratio of NPEs to the loan loss provisions required to cover the exposures.
Just for the non-performing shipping exposures in the entire Bank of € 9.0 billion there are loan loss provisions of € 5.4 billion, resulting in a high coverage ratio of 60 percent. With respect to all NPEs within the Group, this ratio still stands at a good 48 percent; here a total of € 14.6 billion is offset by loan loss provisions of € 7.1 billion.
CET1 ratio and leverage ratio improved
The Common Equity Tier 1 (CET1) ratio (phase in) increases to a good 14.1 (12.3) percent. This is attributable to the encouraging net profit for the year and to the substantially re-duced risk exposures as a result of the federal state transaction and the ongoing wind-down of legacy assets. The leverage ratio, i.e. Tier 1 capital in relation to business volume, improved further to a very solid 7 percent (31 December 2015: 6.3 percent) and thus clearly exceeds requirements.
|Income Statement (EUR m)||2016||2015|| Change in
|Interest expense for investments and derivatives||-191||-55||>100|
|Interest income from investments and derivatives||183||29||>100|
|Income/loss from hybrid financial instruments||-118||104||>-100|
| Net interest income
|Net commission income||87||114||-24|
|Result from hedging||-4||12||>-100|
|Net trading income||88||84||5|
|Net income from financial investments||140||54||>100|
|Iincome from investments accounted for using the equity method||3||-||>100|
| Total income
|Loan loss provisions in the lending business||631||-354||>-100|
|Hedging effect from credit derivative second loss guarantee||-475||658||>-100|
|Other operating income||58||38||53|
|Expenses for bank levy and deposit guarantee fund||-56||-50||12|
| Result before restructuring and privatisation
|Result from restructuring and privatisation||-110||-31||>-100|
|Expenditure for public-sector guarantees||-214||-473||-55|
| Profit before tax
|Income tax expenses||-52||-352||-85|
| Group net income
|Group net result attributable to non-controlling interests||2||-1||>100|
|Group net result attributable to HSH Nordbank shareholders||67||99||-32|
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|Additional key figures of HSH Nordbank Group||31/12/2016||31/12/2015|
|Total assets (in EUR bn)||84.4||97.0|
|RWAs post-guarantee (in EUR bn)||28.6||37.4|
|Common Equity Tier 1 capital ratio (CET1 ratio, phase in) (%)||14.1||12.3|
|Tier 1 capital ratio (%)||18.7||16.4|
|Total capital ratio (%)||24.8||20.6|
|Full-time staff (FTEs)||2,164||2,384|
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